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tv   Options Action  CNBC  April 27, 2014 6:00am-6:31am EDT

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things. now you stay safe. bye-bye. ♪ this is "options action." tonight -- ♪ give me shelter ♪ >> that's what traders were saying today. we've got the sector that can weather the storm. you'll be shocked what it is. ♪ bubble and crude >> oil, that is. black gold. energy stocks on fire. we'll tell you which name is about to get even hotter. and want to get an edge on earnings? one big name reporting next week is seeing unusual activity. mike goes undercover to break it down. "the action" starts now. welcome to the nasdaq market.
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i'm melissa lee. these are the traders at times square and cnbc headquarters. call it the beat-down. a number of stocks posted great earnings. it didn't matter, check out, in fact, netflix, amazon and facebook sharply lower. could in signal the best of the soft rally? let's start off with the resident bear. >> we call it skeptic. >> whatever you want to call yourself. >> you listed three names that have defied gravity in the last leg of the bull rally. when you look at the results they reported, in a lot of ways, the headlines looked like they were in line to maybe better. when you peel underneath, to me there were troubling signs. really to me the price action we saw in those stocks after reporting headlines to most viewers at home looked good enough to keep things going, especially after a lot of these stocks were down 10% to 20 percent heading into this week. some even more. something changed. the psychology of investors that don't want to own growth at any
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price at all. so it's a real problem. >> it's not psychology. first, at any price, i mean, these things were ludicrously priced to begin with. you know, when you take a look at earnings, we see a few earnings pieces, take a look at the sales numbers, a little few -- a few numbers actually beat the revenue number. it actually doesn't look that good. usually you see 10%. >> beating the revenue number, a bigger percentage beating earnings. split down the middle, that's not so good. take a look at what amazon said. they are forecasting the loss for the current quarter. so you have a profit for them, the last quarter that matches. this quarter, we're not going to make money, why would you be you've got to press the shorts here. >> melissa asked, is it over? it's certainly over from a momentum stocks. i don't want anybody who wants to commit new money to momentum stocks. but mike really touches on something important here. that is about three weeks ago, we expected earnings growth for the s&p to be good. in that time it's only been three weeks that estimate has come down about 25%. so people are lowering
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expectations, and then they're meeting or not quite getting there. you can't do that. if you're going to lower expectations, you need to do much better. mike hits on the important thing for amazon. this quarter, the current quarter run, it looks horrible for them and people are tired of that story. they're tired of it's going to grow and grow and grow. they're tired of that. >> i got the big one, though. when you think about, we know it's been tough in small cap land and high valuation, high growth land. okay. the nasdaq is down 7% for the highs. the russell's down 7% from the highs. you know what's not down a heck of a lot? s&p. april 14th all-time high, it is down 2%. if you look at that chart, that is the trend line, the trend channel. it has not broken its move average since november of 2012 on the downside. we are overbought. if the s&p, if large cap stocks start to participate, we're going back to 1750. >> carter worth. i want to bring you in. you're in the magical place we call englewood cliffs. in terms of this divergence
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between the big cap technology and what's going on in the s&p 500. can we see this continue where the nasdaq got so beaten down, the s&p still remains in this trend channel? >> the numeric unchanged situation which is the s&p, virtually at all-time highs. yet parts are collapsing. it's a function of the rotation. we've seen epic rotation out of growth and into value. but what happens after that initial phase, this is now seven weeks old, is the value starts to succumb and the growth doesn't get better. in principle. that's the way history shows this gets resolved. the implication is that the aggregate s&p goes lower as parts go lower. >> all right. so this is going to be a concern. if you are in the momentum names, or you are simply watching this, what is particularly concerning, you can explain amazon, the operating margins, but facebook is trading sharply. if that was a great quarter. yet look at where it is now, it's being taken out to the woods, just like any other stock. >> i think people loved the growth there. the company is doing a lot of
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things. i think there are questions about those two acquisitions. but i'll pin point when this whole thing started. it was february 6th when twitter reported their first ever public company. you know what the stock did the next day? it went down 24%. everything on the headline looked better, revenue, earnings, their guidance, everything look ed better. you know what was not looking good? growth. their engagement. that's when this all started. if you go back to that date the yelps, the pandoras, everything, they were all at all time highs. that's when the party ended. and i think it continues. i think you sell rallies in all of these names. >> what's your trade on twitter? this is a tough one. there are two events that are coming up. next week on the 29th, they're going to report their second public quarter. listen, i can't imagine some of the user issues are going to be a lot better. the company blamed it on onboarding, people logging on and don't know how to use it. i don't buy that. i think the growth is stalled. i do like the company. to me, then you also have may 6th 465 million shares. coming unlocked. i know a lot of insiders are not going to sell. let me show you this. there's one chart we have up
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there. the stock is still. it went public at 26. it's at 42 or so. it's still up a whole heck of a lot. if this party is over, people will definitely sell. today when the stock was a little above 42, 42 and a quarter. i bought a put fly. it's going to sound maybe a little causing because it's at a traditional put fly. it's pretty simple, the professor over here is button it up afterwards. it's a broken wing. the may expiration. the may 40, 30, put fly for $2. i sold two of the may 30 puts at 30 cents each. a total of 60 cents. i bought one of the may 24 puts for 5 cents. max risk is $2. where i make money, i make $30, i make $8, four times the money, 15% implied move, 24% last time. this is an interesting trade. >> the thing i love about broken wing flies as we call it, you can make a directional bet, in this case making a bearish bet to the downside. if you're using a symmetrical
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fly you can lose money, it's hard to get the direction right, your trade goes wrong. in this case you don't make as much, you make money no matter how far down the stock goes. those are the lower probability bets anyway. i think this is an intelligent bet on something that has a big implied move. you want to sell a lot of the premium. this is a really gad way to play it. >> four weeks ago i was in the wilderness hating twitter. welcome to the club, guys. it's a neat product. i'm not certain it's a great company. i understand why he's buying that 24 strike, paying a nickel for it. that way he limits his risk, defines his risk. but you're only saving yourself 55 cents by turning this into a fly. just by that, the 40/30 spread, i think you're in much better shape. >> the truth is i wouldn't sell that 30 just one time. it was 30 cents or whatever. so your choice is do you -- amount of premium you're going to commit, do you not trade all those options legs and just buy a put? to me i like making defined risk
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bets. i like to know what i'm going to make, somewhere. >> down day for the markets. one area of strength was the big oil names. activity in the option pits suggests even more. >> thaerng, traders are making bullish bets in big oil stocks. names like exxon, bp, chevron. in exxonmobil, more calls than puts were traded today. bp saw a 3-1 call to put ratio, bullish indicator there. chevron, more than four calls were traded for every single put option. now, a lot of the activity was in longer dated options which suggests that traders are seeing gains coming later on in the year. but interestingly enough here, exxon and chevron report earnings next week. pretty near term. as you know, energy has been a very hot trade this month. so some interesting options action this time around in oil. >> all right, thanks so much. so the question now is, should you john be in on this bullish action in oil stocks? carter worth once again, carter, a couple of weeks back i believe
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you said you liked the xle, do you still like it given the gains we've soon so far? >> sure, obviously the best-performing sec are for for several weeks, months in a row. what's interesting is that the entire group represents 10.5% of the s&p. 55 names. three names are half the weight of the sector. exxon, chevron, and exxon has lagged and that's the opportunity. the biggest name is not participating. take a look at some of these stats. we have year to date, we have two-year, five-year, ten-year. exxon is really trailing the aggregate, trailing the sector, by a considerable margin. at some point that is not sustainable. if we look at comparative charts, i think you'll see this visually. so i have a year to date-chart. again, each one of these is going to compare exxon relative to its sector, the s&p 500 sector itself, all 55 names. here it is trailing year to date. up basically 1% versus 6. take a look at the next time
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frame. this is over the last 12 months. again, exxon trailing. take a look, over five years, same situation. and in some cases if you look at this divergence, you're talking about underperformance by about 50%. then look at the long-term chart which goes back here about 20 years. again, the top line is the sector. the bottom line is exxon itself. so we think the opportunity here is to play exxon for some catch-up. and also this is important. if the market really gets in trouble exxon's a very defensive asset. so have a look at the chart of exxon if you will. the chart itself. you notice where we are now. we're back to the highs of december, centering on about 100. and so after a sell-off in february, we're back to where we are. take a look at the longer-term chart, five-year. look at the trend line. look where we are now. see the arrow i've drawn. look at the chart right now in relation to its all-time high. this is quite a well-defined level. we're toying with the prospects
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of breaking out above the tops of '07-'08, very interesting moment for exxon. >> mike, how do you set andrade on this? >> i think the best way, given options premiums are low, to look far out, out to october, buy the 100 calls, pay $3.50. exxon is the best stock in the space but you usually pay a premium, right now it's trading at multiples similar to the rest of the space. so this is -- spending 3.5% of the current stock price to get long all the way to october. >> if you agree with carter's thesesy i like the trade. i can't agree with the thesis whatsoever. we are in the fifth year of this global recovery, oil has gone berserk because of geopolitical stuff. that may continue but let me tell you something. if global growth starts to slow this company -- there's no earnings growth here. sales growth, it's declining sales growth. to me, i think if you have a back half -- >> continues to grow in china, we're going to probably see 90 milli million barrels a day. the supply in the middle east -- most of that is accounted for by unplanned outages.
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so i really don't see where you think there could be the bottom falling out of oil prices. >> this is an example of earnings expectations coming in. right now we're expecting 1.88 a share. we expected $2 a share. this company should not have trouble meeting or beating what other companies have not been able to do. exxon wonderfully managed. >> they missed last quarter. >> i didn't realize we were trading last quarter, i'm trying to trade this quarter. expectations are quite a bit lower. mike is making a good option trade because he's defining his risk. he's buying an inexpensive option. because he's buying an option he's buying a longer dated option. that's the way to get the math working for you. >> a question, send us a tweet @cnbcoptions. scott's answering a question about how to make a bearish bet on bonds. find educational materials, action chuf trades, and video. mike is going undercover to find the stock traders love ahead of next week's earnings.
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he'll give you the edge. what sector of savvy traders hiding out in? we'll tell you when "options action" returns. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ]'ll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪
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[ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. earnings, earnings, earnings. another heavy week of results. now options can be a great tool for predicting where stocks are heading but it requires some investigative work. so this is a new segment we're
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calling "earnings csi." it's where mike goes undercover, combing through the data to find clues about a stock reporting earnings next week. it gives him a chance to tap into his inner david caruso. you look generally very serious. a departure from right now. unusual activity, mike. which stock caught your eye? >> mgm, reporting on the 29th. what i happen to notice todays the put call ratio. a lot of options activity, whether ratios change. people trading more puts than calls by 60% today than usual in this stock. and body of the two most active options were puts. the one that caught my eye was the may 22 put. we're seeing people buying those things for about 45 cents. they're making bearish bets going intoerings. these are going to expire the third friday in may. looking at this, though, i would probably be inclined to take a higher probability bet. i would probably look to do the may 23-21 put spread.
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you can spend 50 cents, you're going to start making money before the other one breaks even. you're going to have to see the stock move down materially for the other trade to get ahead. over the last several earnings, this has moved about 11.5%. in the month that follows earnings. so 11.5%, that gets you down to 21 bucks or so. so you probably want to see the mach profits there. >> this is the worst-looking chart i've seen in a long time. this is like a classic textbook head and shoulders. i love targeting that $50 lev20. >> the option trade makes sense, not risking a lot of money to make a fair amount of money. >> carter and dan, talking about charts, dan's not a chart guy, what have you found? >> everyone's entitled. but he has it right. here is a chart of mgm. we have a shoulder, we have a head, we have a shoulder. well-defined neckline. the presumption is it gives way, breaks here, 20 is reasonable or even worse, it's not a good
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setup. >> like i said. >> like you said. exactly. good job by dan. >> yeah. >> i tell you, whole sector looks bad. wynn resorts -- >> you're negative on china. >> on the whole global economy. >> he's negative on everything. >> this would be a good place to start. >> stick to my guns. >> the discretionary spending figure is going to have to crack. something like this makes more sense. more sense than being bearer on exxon. >> mgm not as tight in china as wynn and vegas sands. >> can old tech keep on chugging? is this the unlikely safety trade for 2014? what our traders think when we come back. ♪ ♪ ♪ ♪
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[ tires screech ] chewley's finds itself in a sticky situation today after recalling its new gum. [ male announcer ] stick it to the market before you get stuck. get the most extensive charting wherever you are with the mobile trader app from td ameritrade. [ indistinct shouting ]
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♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ]'ll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ when something's good, that's good. how about making something good even better? that's what dan is doing with his bullish bet on cisco. take a look. on "options action," sometimes risking less to make more isn't enough. sometimes we want more cash. and that's just the case with dan's bullish bet on cisco. ♪ cisco kid was a friend of mine ♪
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>> dan was a fan of the sec giant. >> the stock like cisco could start to participate -- >> just buying the stock, 100 shares would set him back more than $2,000. >> that's a lot of money! >> sure it is. so to make his bullish bet, dan bought the may 22 strike call for 55 cents. that 55 cents is the most he can lose on the trade. but to make money, dan needs cisco shares to rise above the strike of that call by more than the cost of the trade. or above 22.55 by may expiration. >> beautiful. >> it gets even burt. better. that call will increase in value faster than the shares will, if they rise. meaning more money in dan's pocket. and since the time of the trade, cisco shares have risen 8%, which is good, but not enough to make this trade a big winner. that's why "options action" fans are asking, how can dan make more cash?
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before we find out, let's see how well we've done. if dan had bought cisco march 21st he'd be up 6%. because it has more leverage dan's call has more than double the his money. bought for 55 cents, 1.30. the segment is called "i want more cash." >> i think to start with the premise, do you want to stay long? the calls and you want a bullish outlook on the stock, reporting earnings on may 14th, this is a definable catalyst. to me these guys get about 35% of their sales from overseas in asia and europe. i don't like the setup here anymore. there's three things you do. i sold them around here for a double. i like getting doubles in options trades. the other thing you do is sell the may 24 calls against it for about 30 cents. reduce about half of your premium risk and lock in some of that spread that you just made. or you could sell half and take your cost off the table. those are three options. you've got to decide whether you want to remain bullish. when they report i don't think the quarter's going to be great.
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you may get lot of gimmicky stuff like we saw from apple with dividend increase, they got a lot of cash, maybe increase their share buy-back. take the trade and move on. >> you could roll out and up is another possibility. i also don't like the idea of staying in this thing. you're in an option that's decaying rapidly. just going ahead and spreading it so that you can mitigate some of that when you're not really seeing that much conviction doesn't make a lot of the sense. >> one thing i would not do, i would not sell the may 23 call. you might think i can sell that for 65 cents. i get into a situation where i can't lose money, but you get yourself into a situation where all i can make is a puck. that's not a situation i want to be in. because this is a solid standup double. i don't want to turn my solid standup double into a trade that can only make a dollar. i like taking half off and letting the other half go. >> that's a baseball term. >> i want to broaden this discussion to all tech in general. this is cisco-specific?
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how do you feel about hiding out? mr. bear? >> when we put this trade on about a month ago, i liked it because i really thought this move into large-cap tech names that are perceived defensive -- they have a 3.3% dividend yield, 30% of their market cap in cash, the stock has underperformed. it caught up. it almost got to 24. we put it on when it was below 22. i liked it there, i don't love it here. >> it is more defensive to be in old tech, they don't have the situation of being ludicrously priced to begin with. apple performing fairy well. that's being supported in large part by the 7 for 1 split. those names don't have as much hazard to them. if you have to be long, i'd rather be long there. >> although you saw the chart of cisco versus microsoft. microsoft now playing with that $40 level after being at $41. i don't see how microsoft goes any higher than where it's at now unless it does some sort of financial engineering like apple did and returns a bunch of money. but then they're only giving you
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your money back. next we've got the "final call." [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ]'ll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪
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[ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are
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with the mobile trader app. from td ameritrade. time for the "final call." the last word from the options pits. carter. >> if you don't have exxon, get some. if you do, retain what you have. the presumption is the value growth rotation continues. exxon's a good bet. >> scott. >> traders have their faces ripped off trying to bet against bonds. this week's web extra is how to do it sensibly. >> i wouldn't short a stock like twitter that's oversold. shore up his money, scott. i would look at defined risk bets that you think define a range where you're risking what you're willing to lose. >> we pointed out the s&p really hasn't dropped as much as the rest of the market. that's good news for anybody who's interested in hedging. because you typically use spy puts to protect your portfolio and put spreads and you can look to purchase some of those further out. >> it looks like our time has
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expired. i'm melissa lee. thanks so much for watching. check out and check out "inside fast" every day around 5:40. see you next friday pack here for more "options action." >> hello. i'm mike lindell, inventor of the world's most comfortable pillow. now i've created the next generation in sleep innovation. don't change that channel because the next 30 minutes are going to change your life. >> it levels out my bed. i can sleep in it really well. i don't roll over the middle. i'm not throwing my legs over the other side. i wasn't hot. i wasn't tossing and turning. i'm a snorer. you know, since we've had it, she hasn't complained about me snoring, or whipping my arms around. >> when i'm in my bed, i need my good, quality sleep and i'm getting that. >> it's just this wonderful


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